I can still add A LOT of value...but this deal "feels" wrong

[Will Gaston]

All:

I have been investing in my market for 11 years and know the two zip codes that I only buy in extremely well.  I was approached 18 months ago by an agent that I trust about purchasing an 8 unit building in an A+++ location. He begged me to buy it as he insisted it was a great deal. But I just couldn't pull the trigger, mostly because of my ego.  

The seller wanted 449k for the property and had only owned it for 4 months after he just paid 325k. He spent ~20k on Cap X but never raised the rents, which were approximately ~5200/month. It "felt" wrong to buy it at that price. I told myself that retail buyers pay for property like that, not me. The property ended up selling about 12 months ago to the current owner for 403k.  

Well, the new owner has raised the rents to ~6000/month. 

The same agent that I trust has approached me again about buying it.  The newest owner wants 525k for the property because she has raised the rents to ~6000/month. She has done nothing to the property at all as far as improvements.  

BUT here's the thing. I know the property is still vastly under-rented.  I own the property next door so I know the location very well. The property will easily rent for at least $8,000 but will probably be closer to $9,000.  The property would be worth over 700k if I am able to sell it at the same Gross Rent Multiplier as I buy it for.

AND I can buy this property for no money down. I have a bank that absolutely loves this collateral. They will lend me a 75% first mortgage (20 year am/7 year balloon) and the current owner will carry back a 25% second mortgage (interest-only) with a 7 year balloon.

I've kicked myself on a daily basis for not buying this property the first time for 403k.  Am I letting my ego get in the way a second time?  As a RE investor, it's a very difficult feeling to pay 122k more than I could've just paid last year.  It also feels very 2006-ish to me.  I know it's only supposed to be about the numbers, but it's hard for me to stick to that maxim. 

What say you?

[Aida Rodriguez]

Hey Will, 

I don't think it's the right time for this one.  It sounds like the profits are minimized if you bought this property now.  I say keep your eye on it as you move on to other properties.